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Chapter 2: Q. 6 (page 77)

A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen

televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and

quantity of flat screen TVs?

Short Answer

Expert verified

PRICE DECREASES QUANTITY DEMANDED INCREASES, DEMAND CURVE SHIFTS TO THE RIGHT. THE EQUILIBRIUM SHIFTS TO THE RIGHT.

Step by step solution

01

Q6

On reduction of tariff the price of the good will fall, which will lead to increase in quantity demanded. This will lead to the right ward shift in demand curve. the new demand curve would intersect the supply curve at a new point, giving a new equilibrium. the new equilibrium is to the right of the previous equilibrium

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Most popular questions from this chapter

In 2010, Americans smoked 315 billion cigarettes, or 15.75 billion packs of cigarettes. The average retail price (including taxes) was about \(5.00 per pack. Statistical studies have shown that the price elasticity of demand is -0.4, and the price elasticity of supply is 0.5.

  1. Using this information, derive linear demand and supply curves for the cigarette market.

  2. In 1998, Americans smoked 23.5 billion packs of cigarettes, and the retail price was about \)2.00 per pack. The decline in cigarette consumption from 1998 to 2010 was due in part to greater public awareness of the health hazards from smoking, but was also due in part to the increase in price. Suppose that the entire decline was due to the increase in price. What could you deduce from that about the price elasticity of demand?

Suppose the demand curve for a product is given byQ= 300 - 2P+ 4I, whereIis average income measured in thousands of dollars. The supply curve isQ= 3P- 50.

a. IfI= 25, find the market-clearing price and quantity for the product.

b. IfI= 50, find the market-clearing price and quantity for the product.

c. Draw a graph to illustrate your answers.
  1. In Example 2.8 (page 74), we discussed the recent decline in world demand for copper, due in part to China’s decreasing consumption. What would happen, however, if China’s demand were increasing?

  2. Using the original elasticities of demand and supply (i.e., ES = 1.5 and ED = -0.5), calculate the effect of a 20-percent increase in copper demand on the price of copper.

  3. Now calculate the effect of this increase in demand on the equilibrium quantity, Q*.

  4. As we discussed in Example 2.8, the U.S. production of copper declined between 2000 and 2003. Calculate the effect on the equilibrium price and quantity of both a 20-percent increase in copper demand(as you just did in part a) and of a 20-percent decline in copper supply.

Refer to Example 2.5 (page 59) on the market for wheat. In 1998, the total demand for U.S. wheat was Q = 3244 - 283P and the domestic supply was QS = 1944 + 207P. At the end of 1998, both Brazil and Indonesia opened their wheat markets to U.Sfarmers. Suppose that these new markets add 200 million bushels to U.S. wheat demand. What will be the free-market price of wheat and what quantity will be produced and sold by U.S. farmers?

Does a price ceiling change the equilibrium price?
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